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1
TEACHING NOTE
CASE 2
Airbnb in 2016: A Business Model
for the Sharing Economy
Overview
Airbnb was founded in 2008 when Brian Chesky and a friend decided to rent their apartment to guests for
a local convention. To accommodate the guests, they used air mattresses and referred to it as the ‘Air
Bed & Breakfast’. It was that weekend when the idea; and the potential viability; of a peer-to-peer room-
sharing business model was born. While not yet a publically-traded company in 2016, Airbnb had seen immense
growth and success in its 8-year existence. The room-sharing company had expanded to over 190 countries had
more than 2 million listed properties, and had an estimated valuation of $30 billion. Airbnb seemed poised to
revolutionize the hotel and tourism industry through its business model that allowed hosts to offer spare rooms
or entire homes to potential guests, in a peer-reviewed digital marketplace.
This case is meant to introduce students to the sharing economy and potential business models, as well as how
technology and the legal environment can both lead to opportunities, as well as challenges. The case opens and
closes with quotes from the founder, Brian Chesky, as a method to juxtapose for students how rapid advances in
technology can lead to changes in competitive strategies for business, yet, how the legal environment can both
lag behind, and be used to obstruct such strategies.
An overview of the accommodation market (i.e. hotels, motels and bed & breakfasts) are provided to illustrate
for students such strategic considerations as competitors; both large and small; and the type of consumer, such
as business and recreational. The case then presents the costs of operating said businesses to demonstrate the
inherent competitive advantage of Airbnb’s business model. This competitive advantage is further illustrated when
within the case the changing consumer demands and expectations are discussed, thus bolstering the company’s
competitive advantage. Within this presentation of the competitive advantages, then, is the issue of regulations
within the market, and the continuing issues Airbnb faces, given current and forthcoming regulations. The case
closes by asking students to consider how Airbnb may need to mitigate these issues concerning regulations,
while preparing for a future IPO.
Suggestions for Using the Case
Students should find Airbnb in 2016: A Business Model for the Sharing Economy an interesting case because of
their own experiences with smartphones and companies such as Uber, or even Airbnb. We recommend using the
case immediately following your coverage of Chapter 1. As this case specifically addresses the sharing economy,
it lends itself well to discussions of smartphones, technology and their impact on competitive positions for both
new and incumbent competitors. It may also lead to discussion of disruptive innovation.
*
*This teaching note reflects the thinking and analysis of the case author Professor John D. Varlaro, Johnson & Wales University. We
are most grateful for his insight, analysis and contributions to how the case can be taught successfully.
Case 2 Teaching Note Airbnb in 2016: A Business Model for the Sharing Economy
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The assignment questions and teaching outline presented below reflect our thinking and suggestions about
how to conduct the class discussion and what aspects to emphasize.
To give students guidance in what to think about and what analytical tools to utilize in preparing the Airbnb in
To facilitate your use of study questions and to make them available to students, we have posted a file of the
assignment questions contained in this teaching note for the Airbnb in 2016 case in the instructor resources
section of the Connect Library. (We should also point out that there is a set of study questions posted in the
student section of the OLC for each of the 31 cases included in the 21st Edition.)
You may also find it beneficial to have your class read the Guide to Case Analysis that follows Case 31 in the text
Videos for Use with the Airbnb in 2016 Case. There are two videos that you may consider having students
view prior to class discussion of the case (or you may choose to open the class discussion with one of the two
videos). Both videos are posted at YouTube and can be access through the following links:
The length of the case makes it ideal for an in-class written case or a final exam case. Our recommended
questions for written assignments are as follows:
1. Hilton Worldwide has asked you to assess the threat of Airbnb. Please prepare a 5-6 page report
that includes a description of both Hilton and Airbnb’s business model, as well as discussed
Assignment Questions
1. Using the example chart in the textbook for business models, illustrate and compare the value proposition
for Airbnb, large hotels such as Marriot and Hilton and bed & breakfasts.
2. Compare and contrast the general strengths and weaknesses of large, hotel chains such as Marriot and
Hilton, bed & breakfasts, and Airbnb.
Case 2 Teaching Note Airbnb in 2016: A Business Model for the Sharing Economy
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3. How has the consumer changed and how does Airbnb’s customer value-proposition meet this change?
4. What key factors may determine the success of Airbnb?
5. What recommendations would you make to Airbnb to improve its competitiveness in accommodation
market while mitigating any current and future risks?
Teaching Outline and Analysis
1. Using the example chart in the textbook for business models, illustrate and compare the
value proposition for Airbnb, large hotel chains such as Marriot and Hilton and bed &
breakfasts.
Students should be able to identify the following:
Large Hotels
Bed & Breakfast
(single proprietor) Airbnb
Customer
Value
Proposition
• Familiar brands
• International brands to
which customers are
• One location,
offering unique, local
accommodation
• Use of technology to which
users are familiar
• Smaller, more intimate stays
Profit
Formula
• Revenue generation
dependent on renting
rooms and overall
occupancy
• Revenue generation
dependent on renting
rooms and overall
occupancy
• Revenue generation
transaction fee charged to
users whom offer and rent
accommodations through
Profit
Margin
• Dependent on generating
suffcient revenues across
multiple locations to
cover fixed and variable
costs globally. Profitable
locations may be used
to offset losses and
unprofitable locations
• Dependent on generating
revenues suffcient to cover
fixed and variable costs.
Lack of profitability several
jeopardizes business as
owned by sole proprietor
• Independent of costs
associated with operating
hotels/bed & breakfasts.
Instead, profitability
associated with percentage
of revenue generated by all
participating users offering
accommodations
Case 2 Teaching Note Airbnb in 2016: A Business Model for the Sharing Economy
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2. Compare and contrast the general strengths and weaknesses of large, hotel chains such as
Marriot and Hilton, bed & breakfasts, and Airbnb.
Large Hotel Chains
Bed & Breakfast (single
proprietor) Airbnb
Strengths • Familiar, International
brands
• Brand loyalty
• Global reach
• One location,
offering unique, local
accommodation
• Intimate accommodation,
• No costs associated with
operating hotels, thus greatly
reduced cost structure
• Leveraging technology
Weaknesses • High cost structure,
further complicated by
global operations and
presence
• If consumer has bad
experience with one
• Revenue generation
dependent on renting
rooms and overall
occupancy, highly
associated with travel
trends in the area
• Perception of at times unsafe
experiences
• Users may be hesitant to use
Airbnb in specific locations,
opting for a more familiar brand
• Legal exposure through
3. How has the consumer changed and how does Airbnb’s customer value-proposition meet
this change?
Students will be able to identify the following:
n Desire for unique experiences, not focused on ownership. Students should be able to discuss how
evidence of the sharing economy not only with Airbnb, but also Uber, Lyft, and other similar companies.
Students may reference their own experiences, but should discuss how Airbnb provides users the
opportunity to experience multiple, unique accommodations not associated with larger brands. Further,
smaller sole proprietors such as bed & breakfasts may be accessed through the app. Finally, those
offering accommodations may also share in the desire to not only have a unique experience with a guest,
but not be reticent to invite a stranger into their own home or apartment.
Case 2 Teaching Note Airbnb in 2016: A Business Model for the Sharing Economy
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4. What key factors may determine the success of Airbnb?
Factors that are necessary for competitive success for Airbnb:
n Mitigation of legal threat. Any regulation which inhibited or prevented Airbnb users from offering
their rooms on Airbnb represented a significant barrier. Students should observe that due to Airbnb’s
progressive business model, legislation both domestic and international did not account for, and had yet
caught-up to business models utilized by companies like Airbnb. To that point, students should observe
the complicated legal issues represented at the local, state and federal-level within the U.S., and that
these regulatory levels also existed abroad. Further, students should note that competitors, both sole
proprietor and large hotel chains invested, and will most likely continue to invest resources in lobbying
to exclude Airbnb and create severe barriers to its operation.
5. What recommendations would you make to Airbnb to improve its competitiveness in
accommodation market while mitigating any current and future risks?
n Students should note that the estimated revenues were strong, and that Airbnb’s cost structure combined
for a very solid competitive position. Students should first recommend Airbnb continue to lobby and
advocate for friendly legislation as it did in 2015, but may also identify other avenues for such activities.
For example, students may identify business organizations, such as chambers’ of commerce, as large,
pro-business groups that could be leveraged to gain legislative support.
n Students should identify how single-proprietor establishments can be a boon for Airbnb, and devise
methods to enroll and assist such businesses in utilizing Airbnb as a platform for marketing and offering
accommodations. Doing so can mitigate the legislative risk while growing the user base and potential
future revenues.
Case 2 Teaching Note Airbnb in 2016: A Business Model for the Sharing Economy
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Epilogue
There was nothing new to report at the time this teaching note went to press, although similar news articles con-
tinued to appear discussing the aspects within the case.
